Trust Your Instincts – Learn from My Japan Investment Example

Have you ever had one of those situations where you thought you had a potentially good investment opportunity right in front of you, but for whatever reason you just didn’t pull the trigger on it?

I had one of those just two weeks ago to this day. It just seemed like an intriguing opportunity, but I never took the plunge .

The opportunity I’m talking about was the chance to invest in Japan after the terrible, tragic earthquake and tsunami in March 2010.

Those of you who are regular readers might remember my post from March 18 titled “Is This a Good Time to Invest in Japan? “. The whole premise of the post was that the prices in the NIKKEI 225 plummeted in the week after the disaster, and that I thought Japan was undervalued at that time. In other words, a market overreaction took place, leading to a good long-term buying opportunity. Sometimes we might listen to investor tips, other times – such as this – we make a determination on our own.

How low did it go? At the time of the March 18 article, the NIKKEI 225 index was at 8,962.67. As of March 31, the index was at 9746.62.

That’s an 8.7% increase for the NIKKEI 225 in just 2 weeks!

By comparison, the S&P (where I have been, in an index fund) grew from 1,273.72 to 1325.83 over that time period. This represents a 4.1% increase in the same two weeks. Still pretty good.

However, the 8.7% for Japan is better than the 4.1% for the S&P 500!

This isn’t surprising. After all, I called it, right? 🙂 I’ll pat myself on the backfor identifying this as a buying opportunity and putting it here on Squirrelers!

That said, once done with the pats on the back, I can start kicking myself as well. Except the kicks will be harder than the pats on the back 🙂

Why? Well, I never did anything about it. Despite taking a chance by calling this out as an intriguing investing opportunity, I missed the boat. Delayed by one day, then two days, then finally it was too late. The window of opportunity was gone. The analysis was sound, but the action was missing. Ultimately, risk-aversion took over.

Ideas and plans can be good, but they don’t help you unless you take action on them. Without action, ideas are just that – ideas. Another reinforcement of an old lesson.

My Question for You:

Have you ever thought it was a good time to make a particular purchase, only to not follow through on it? If not you, maybe you know of someone who has faced this situation.

Comments

I’ve got a few stories like that. I had one stock that I started watching with good intentions of buying. Well, it went from $8 to $15, and then $20, and I finally bought some at $38. It’s now $44, with plans of instituting a dividend payout in the few years. The value is still there, and if it ever goes lower than my entry point I’ll buy some more. So the decision is still solid. But I so wish I had acted sooner.

101 Centavos – you make a really good point there. That’s actually a story that is one to learn from. My guess is that you somehow factored out the idea that you missed the biggest opportunity with the stock when it was undervalued, and made the buy decision anyway. Essentially, it seems like you just considered if it was a good stock at that particular point in time and if it was still a value buy – regardless of how much could have been made if you bought earlier. That’s actually a very rational way to make such decisions. Well done.

Absolutely! I was contemplating buying some Agrium stock last year, but I sat on it. Over the course of a couple of months, the stock skyrocketed almost 50%. That was my hard lesson in trusting my gut.

Cassie – yes, I can see how that was a hard lesson. Sometimes we have to go for it. Not always, but on those rare (for me, anyway) occasions where you’re able to see something that’s a true opportunity, it’s worth considering that we might want to act on our thoughts.

My problem is more on the sell side. I am a reluctant seller. Even if I think the stock is going to drop, I usually hold on to them. I think this is why mutual fund and ETF are better suited to my temperament.
There are always buying opportunities even if you miss one or two.

retirebyforty – seems like you have the opposite of the Disposition Effect taking place with your selling tendencies. I tend to like mutual funds as well, mainly for the low fees in they’re index funds. Agree, that there are other opportunities that come up in the future. I just view this as a lost opportunity because I was able to identify this as an opportunity yet didn’t do anything. No worries though, I don’t too bent out of shape out of things like this 🙂

First Gen – not sure about that. Based on the evidence at that point, it seemed less likely that it would keep dropping. I don’t think there was a 50/50 chance, as in flipping a coin. Sustainable markets tend to recover from very sudden, very steep drops in a short period of time.

Although I am reluctant to look back, there were plenty of times I wish I added to my position in Amgen in the early eighties (I bought at $9) or others. I cannot do much about that, so I go forward learning from the mistakes.

Oh, don’t get me started. March 2009, markets were finally rebounding, tried forcing myself back in. Days, turned into weeks, finally got back in months later. Fear, double dip, etc. Also, I think what hurts us personal finance investors is we love a good deal. This ends up biting us because we remember the price we wanted. We hope we can buy on a dip, but sometimes it sky rockets. The flip side, it does dip, it looks pretty scary again and again we don’t buy. Roller coaster ride. I think I’m gonna throw up now. Haha.

All the time!!!! I wanted to do exactly what you mentioned with Japan, I just don’t have enough free capital to invest. That is why I usually share my ideas with my community, so hopefully someone can benefit from my thoughts. If I had tons of cash sitting around though…it would be a different story!

I have the best (or worst) example ever. I used to do individual stock analysis for seekingalpha, etc. I did this big long post on how Aquantive was going to be taken over by Microsoft any day now since they needed to keep up with Google and others in the space. I believed it myself and put in a limit order for 10 options at .45 when it was trading at a .50 ask. I wanted to save myself 50 bucks on the trade. Well, of course, the trade didn’t get executed and that night – that very night!!! It was purchased at a 67% premium. The options were worth 6,000% more the next day. I missed turning $400 into $24,000 in a day. What’s the annualized return on that!? Anyway, felt like an idiot. I actually had people contact me about my timestamped blog post asking where I got the insider information, etc. The timing was insane. The execution sucked :<

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Disclaimer

We are well meaning folks that are not investment professionals or financial advisors. Please feel free to have fun here, and take this information in the spirit of entertainment, as it is not financial or legal advice, For that, seek an appropriate professional. Your actual financial decisions are your own responsibility. Thank you.